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Our perspective on the fintech world

Two-Sided Networks – Payment’s Holy Grail

Fintech startups are building two-sided networks serving buyers and sellers, aiming to mirror the success of massive incumbents such as Visa and PayPal.

Commerce and the act of payment naturally requires two parties – a buyer and a seller. Serving both of these parties is a hallmark of several of the most successful payment providers. Think Visa, MasterCard, Amex, PayPal. By owning the relationship with both sides of a transaction, these providers have created a powerful network effect, building the value of the network exponentially as more payers and more receivers participate. Recently, I’ve spoken with several fintech startups who are also aiming to create two-sided networks by leveraging their early success in other payment related areas.

Most startups in the payment space focus on providing a service to a single category of customers, and leverage existing card rails or bank-to-bank networks to actually move funds. Square and Stripe have created enormous value by providing sellers with simplified access to card payment acceptance for a range of use cases. enables businesses to easily pay bills and invoices, and uses the ACH bank network to process payments on behalf of their small business customers. These payment companies focus on providing their customers with value added services, and they do this exceedingly well.

Yet the siren call of two-sided networks can be irresistible to some. One example is Fundbox. To this point, they have created a successful business providing working capital loans to small businesses, who often face challenges when seeking funding from traditional banking providers. In my recent conversation with their new CEO, it’s clear that they are aiming for a larger vision. In fact, their recent series C funding round of $196MM was raised in large part to help them build a two-sided credit and payment network for businesses, which they’re calling Fundbox Pay.

Until recently, Fundbox’s focus has been on one side of a transaction, providing working capital to enable businesses to pay their suppliers – essentially a ‘buy now, pay later’ offering for buyers. With Fundbox Pay, they’re going after the other side of the transaction by enabling suppliers to offer extended payment terms to their customers while getting paid right away. By completing the circle, they aim to serve both B2B buyers and suppliers and create a flywheel powered by network effects.

Another example from a different segment is Plastiq. Their service has traditionally focused on payers, allowing them to use a credit card to pay providers who don’t formally accept card payments, thus benefitting from the potential reward points and extended payment terms credit cards offer. I spoke to Plastiq’s Chief Product Officer recently, and he laid out their vision to engage the payment receivers to create a two sided network. In addition to providing a way for card holders to pay non-card-accepting providers, they have just launched a service to allow these non-card-accepting providers to easily accept card payments without obtaining a formal merchant account.

Of course time will tell as to whether or not these startups will be successful with their new initiatives. However, the massive funding, time and effort being applied in seeking this holy grail clearly indicate the tremendous potential opportunity of enabling two-sided payment networks.